“If countries seek to run a fixed exchange rate, then the shortage may be tangible, but if the exchange rate is flexible, it presents itself as a sharp depreciation” in a domestic currency, says Oxford’s Adam. What the African economies need is a resumption of investment that would directly ease the hard-currency shortage and–if correctly targeted–allow the countries to increase their output of exports and invest in capacity to replace imports with domestic goods.
“In the meantime, dollar-dependency will remain, and the only sustainable method for easing the pressure on the balance of payments is by increasing exports of goods and services and by developing the capacity to produce domestic substitutes for imports,” according to Adam.Most African countries fall within the low- and lower-middle-income World Bank brackets, which mean they require imported capital goods like factory machinery and agricultural equipment to power their economies.
The Egyptian pound has been devalued three times since Russia invaded Ukraine in February 2022, but the scarcity of the dollars persists, fueling demand at the black market where the hard currency is more expensive. The dollar scarcity extends to other countries, including in Ghana, Zimbabwe, Zambia and Kenya, the last of which struck a deal this March with oil exporters to temporarily ease its hard-currency shortage.